Professional Documents
Culture Documents
Peter Meindl, D. V. KalraPearson) For academic purpose and private circulation only
From a shareholder perspective, return on equity (ROE) is the main summary measure of a firms performance
Cash-to-cash (C2C) cycle roughly measures the average amount time from when cash enters the process as cost to when it returns as collected revenue C2C = days payable (1/APT) + days in inventory (1/INVT) + days receivable (1/ART)
The physical locations in the supply chain network where product is stored, assembled, or fabricated.
Decisions
regarding
role,
location,
capacity
and
Facilities
In the financial statements facilities costs show up under property, plant and equipment if facilities are owned by the firm and under selling, general and administrative if they are leased.
E.g. Amazon increased nos. of warehousing facilities to improve supply chain responsiveness.
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Facilities
Role in the supply chain
The where of the supply chain (locations from which the
inventory is transported)
Within a facility inventory is either transformed to another state (Manufacturing) or it is stored (warehouses)
Facilities
Location
Where a company will locate its facilities Centralize/decentralize, centralization for gaining economies of
scale
Other factors also considered in location decisions are: macroeconomic factors, quality of workers, cost of workers and facility, availability of infrastructure, proximity to customers,
Facilities
Capacity
Excess capacity gives responsiveness but is costly Little excess capacity is more efficient, high utilisation but less responsive in face of demand fluctuations
Firm need to make tradeoff and decide right amount of capacity at a given facility.
Facilities
Facility-related metrics
Capacity Utilization
Processing/setup/down/idle time
Production cost per unit Quality losses Theoretical flow/cycle time of production Actual average flow/cycle time
Facilities
Overall trade-off: Responsiveness versus efficiency Tradeoff is between cost of the number, location, capacity, and type of facilities (efficiency) and the level of responsiveness these facilities provide. Increasing the number of facilities increases facility and inventory costs but decreases transportation costs and reduces response time. Increasing the flexibility or capacity of a facility increases facility costs but decreases response time
All raw materials, work in process, and finished goods within a supply chain. Exists because of mismatch between supply and demand In the financial statements inventory belonging to firm is reported under assets. Changing inventory policies can alter supply chain responsiveness and efficiency.
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Inventory
High level of inventory may increase responsiveness. Low level of inventory increases efficiency but can lead to
chain.
Material flow time is the time that elapses between the
point at which material enters the supply chain to the point it exists.
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Inventory
Throughput is output per time period. For a supply chain
and can be considered fixed. Thus inventory and flow time are synonymous in supply chain.
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Inventory
Role in competitive strategy
Form, location, and quantity of inventory allow a supply chain to range from being very low cost to very
responsive.
Objective is to have right form, location, and quantity of
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Inventory
Cycle inventory
Average amount of inventory used to satisfy demand between shipments
Seasonal inventory
Inventory built up to counter predictable variability in demand
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Inventory
Level of product availability The fraction of demand that is served on time from product held in inventory
High
level
of
product
availability
increases
Inventory
Inventory-related metrics Cash-to-cash cycle time Average inventory Inventory turns Products with more than a specified number of days of inventory Average replenishment batch size Average safety inventory
Seasonal inventory Fill rate Fraction of time out of stock Obsolete inventory
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Inventory
Overall trade-off: Responsiveness versus efficiency
Increasing inventory generally makes the supply chain more responsive. A higher level of inventory facilitates a reduction in production and transportation costs because of
Moving inventory from point to point in the supply chain. It can take form of many combinations and routes each with its own performance characteristics. Transportation choices have huge impact supply chain responsiveness and efficiency. In the financial statements, outbound transportation
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Transportation
Role in the supply chain
Moves the product between stages in the supply chain
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Transportation
Role in the competitive strategy Allows a firm to adjust the location of its facilities and inventory to find the right balance between responsiveness and efficiency
Components of transportation decisions Design of transportation network Modes, locations, and routes Direct or with intermediate consolidation points One or multiple supply or demand points in a single run
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Transportation
Choice of transportation mode
Air, truck, rail, sea, and pipeline Information goods via the Internet
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Transportation
Transportation-related metrics
Average inbound transportation cost Average income shipment size
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Transportation
Overall trade-off: Responsiveness versus efficiency
The cost of transporting a given product (affects efficiency) and the speed with which that product is
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Consists of data and analysis concerning facilities, inventory, transportation, costs, prices, and customers throughout the supply chain.
Biggest driver of supply chain performance as it directly affects each of the other drivers. Information presents management with opportunity to make supply chains more responsive and more efficient.
In the financial statements, information technology related costs are included either under selling, general
Information
Role in the supply chain Improve the utilization of supply chain assets and the coordination of supply chain flows to increase responsiveness and reduce cost. Information is a key driver that can be used to provide higher responsiveness while simultaneously improving efficiency.
Information
Role in the competitive strategy Right information can help a supply chain better meet customer needs at lower cost
achieve coordination
Information
Enabling technologies Electronic data interchange (EDI) The Internet Enterprise resource planning (ERP) systems Supply chain management (SCM) software Radio frequency identification (RFID)
Information
Information-related metrics
Forecast horizon
Frequency update
Forecast error Seasonal factors
Information
Overall trade-off: Complexity versus value
Evaluate
the
minimum
information
required
to
Sourcing decisions determine what functions a firm performs and what function a firm outsources. These decisions affect both responsiveness and
In the financial statements, sourcing costs are shown under costs of goods sold and monies owed to suppliers under account payable.
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Sourcing
Role in the supply Chain
Sourcing
Role in the competitive strategy
Sourcing
Components of Sourcing Decisions
In-house or outsource
Perform a task in-house or outsource it to a third party
Supplier selection
Number of suppliers, evaluation and selection criteria, direct negotiations or auction
orders
Sourcing
Sourcing-related metrics Days payable outstanding Average purchase price Range of purchase price Average purchase quantity Supply quality Supply lead time Fraction of on-time deliveries Supplier reliability
Sourcing
Overall trade-off: Increase the supply chain surplus
significant
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interaction and make the appropriate tradeoff to deliver the desired level of responsiveness at lowest possible cost.
Idea is to structure supply chain drivers appropriately to
provide desire
This helps in reducing markdowns and lost sales and
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Wal-Mart
Drivers Inventory
Interventions
Pioneered cross-docking
Affect
w.r.t. inventory, Wal-Mart favours efficiency over responsiveness. Results in efficient Supply Chain
Transporation
Facilities
Information Technology
Suppliers
Products are stocked only at stores and not at This significantly lower inventory. both stores and warehouses/DC. Maintains low levels of inventory Runs own fleet Makes supply chain more responsive. Costs are increased but benefit of reduced inventory and increased product availability. Uses centrally located DCs within its network of This increases efficiency at each DC. stores tp decrease nos. of facilities Builds retail stores only where demand is This also increases efficiency of transportation sufficient to justify having several of them supported by a DC. Invested significantly in information This allow sharing demand information with suppliers Technology. who manufacture only what is demanded. Increases responsiveness and decreases inventory costs. Identifies efficient sources of suppliers for each Increased efficiency product it sells. Gives large orders Allow suppliers to exploit economies of scale Practices EDLP for its product. This reduces fluctuations in demand because of price variations
Pricing
Thus entire supply chain focuses to meet demand in an efficient manner and achieve right balance 4-46 between responsiveness and efficiency. Competitive and supply chain strategy are in harmony.